Depar tment of Economic & Social Af fairs
CDP Background Paper No. 21
ST/ESA/2014/CDP/21
September 2014
LDC and other country groupings:
How useful are current approaches
to classify countries in a more
heterogeneous developing world?
José Antonio Alonso, Ana Luiza Cortez and Stephan Klasen*
ABSTRACT
The proliferation of country groupings indicates the need to assess the effectiveness of the
current system for development cooperation and to explore better ways to manage the international system, as heterogeneity among developing countries increases. Great caution should be
exercised in devising new country categories. Donors can use sound criteria for aid allocation
without creating new groupings. If new categories are created at all, issue-based classifications
should be preferred to comprehensive categories; support should be issue-specific. Among the
existing comprehensive classifications, the LDC category has significant advantages but it needs
to better address the problems and incentives associated with graduation.
JEL Classification: F35, F55, O19, O57
Keywords: Country groupings, country classifications, international aid, least developed
countries, country eligibility, graduation
*
José Antonio Alonso is Professor of Applied Economics at Complutense University of Madrid and member of the Committee for Development Policy; e-mail: j.alonso@ccee.ucm.es.
Ana Luiza Cortez is Chief of the Committee for Development Policy Secretariat, Development Policy and Analysis Division
of the United Nations Department of Economic and Social Affairs, e-mail: cortez@un.org.
Stephan Klasen is Professor of Economics, University of Göttingen and member of the Committee for Development Policy;
e-mail: sklasen@gwdg.de
CONTENTS
1Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2 Increasing heterogeneity in the developing world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3 The LDCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The category: criteria and processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
How useful has the LDC category been? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4 Other classifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
The World Bank’s classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Small Island Developing States (SIDS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Land-locked Developing Countries (LLDCs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Fragile states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
UNDP’s Human Development classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Highly-indebted poor countries (HIPCs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5 Problems with comprehensive classifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
The case of LDCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6 Alternative classification by issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7 Concluding remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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views and opinions expressed herein are those of
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the United Nations Secretariat. The designations
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This paper was originated as a contribution to the work programme of the United Nations Committee for
Development Policy (CDP) on the United Nations development agenda for the post 2015 era. This research
effort aimed at analyzing and proposing solutions to the current deficiencies in global rules and global
governance for development. Additional information on the CDP and its work is available at http://www.
un.org/en/development/desa/policy/cdp/index.shtml.
1 Introduction
The developing world has become increasingly heterogeneous. There are still extreme international inequalities, but the economic situation of developing
countries is much more diverse than previously. In
contrast to a clear North-South divide that underpinned development approaches in the past, there is
now a much wider and graduated spectrum of development between countries. It is, therefore, understandable that analysts, governments and institutions
aim to tackle that diversity by establishing categories
for classifying countries to better analyse and organize the complexity of the international system. In
fact, there has been a mushrooming of classification
systems and country categories all striving to put
some order in the new complex international reality,
but not fully succeeding. Instead, the international
panorama has become more confused and disorganised, with several overlapping classifications.1
The first official attempt to classify developing
countries took place at the United Nations, which
identified the least developed countries (LDCs) in
the early 1970s. Since then, several other proposals
followed and were formulated in terms of diverse
criteria, including:
„„ per
capita income level: high, middle and low income, the criteria used by the World Bank since
1980s,
1
In this paper, we focus particularly on classifications of the
universe of developing and emerging economies. Of course,
there has also been a multiplication of classifications and
groupings at the rich end of the income spectrum, ranging
from official groupings defined, for example, by membership in the OECD, to informal groupings such as the G8 or
now the G20.
„„ human
development level: very high, high, medium and low human development, defined by the
UNDP since 1990,
„„ country
indebtedness: Heavily Indebted Poor
Countries (HIPCs) as defined by the World
Bank in the 1990s,
„„ responsibility
to address climate change issues:
Annex I and non-Annex I countries, defined
by the UN Framework Convention on Climate
Change in 1992,
„„ state
of governance: Fragile States (FS), which
replaced the category Low-Income under Stress
(LICUS) both generated by the World Bank and
adopted by the OECD-DAC in the early 2000s),
„„ specific
geographical features: Small Island
Developing States (SIDS) and Landlocked
Developing Countries (LLDCs) put forward by
the United Nations, and,
„„ access
to and weight in international trade: Small
and Vulnerable Economies (SVEs) defined by the
WTO in 2002.
These official and semi-official forms of classification come in addition to classifications related to
organizing work programs and differentiate resource
flows within international organizations or also bilateral aid agencies. Here many categories persist,
depending also on the bureaucratic necessities of
these organizations. The two most prominent examples are the World Bank regional classification (East
Asia and Pacific, South Asia, Sub Saharan Africa,
Middle East and North Africa, Latin America and
Caribbean, Eastern Europe and Central Asia), as
well as the World Bank classification into countries
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eligible for its soft-loan IDA window, those eligible
for near-market IBRD conditions, and ‘blend’ countries that receive funds from both programs.
The net result of this proliferation of categories is
that a single country can belong to various groups
depending on the classification criteria adopted. For
example, Burundi belongs to the following groups:
the LDCs, LLDCs, FS, Low-income, Low Human
Development, HIPCs, and IDA-eligible; and Comoros belongs to LDCs, SIDS, Low-income, Low
Human Development, IDA-eligible, and HIPCs.
The complexity of the classification systems is underlined, on occasions, by the fact that institutions
do not always coincide in their lists of countries that
belong to a group. For example, SIDS category has
as many as six different lists depending on which
institution has produced it; the World Bank (13
countries), the UNCTAD non-official list (29 countries), the UNDESA (39 countries), the Alliance
of Small Island States (AOSIS, 44 countries), the
UNESCO (45 countries) and the UN Office of the
High Representative for LDCs, LLDCs and SIDS
(UN-OHRLLS, 52 countries). Similarly, in the case
of FS, criteria and country lists do not always coincide in the three organisations that use this category
the most: the World Bank, the OECD-DAC and the
British Department for International Development
(DFID), (Harttgen and Klasen, 2012).
Diverse factors explain the existence of multiple
country classifications. On the one hand, donors
have approached country categories as a tool to allocate resources and support for development on the
basis of supposedly technical criteria, even though
the aid allocation processes are primarily political.
On the other hand, the developing countries have
found in country categories a way to attract donors’ attention to their respective problems and to
facilitate the process of lobbying that takes place in
international fora and organisations. Lastly, the dynamics of the multilateral bureaucracies, and of their
experts, has also contributed to the proliferation of
criteria and categories since those processes helps
to justify the relevance of their task of organizing
the complex international reality. In the end, categorisation and classification are important source of
power for multilateral bureaucracies (Vaubel, 1990).
In fact, van Bergeijk and van Marrewijk (2013) argue that some international institutions seem to be
involved in an intellectual competition to invent new
acronyms to re-classify and rearrange groups of developing countries.
Not all the classifications were created to fulfil similar objectives. Some categories were generated for
analytical purposes only or for pushing a particular view on development, seeking to find common
patterns among countries, in order to classify the
heterogeneous international reality (for example,
the classification of countries in terms of income
levels or human development levels). In other cases, however, categories were created with an explicit
international policy goal, linked to the definition
of countries´ eligibility for some particular means
of support (that is the case, for instance, with the
definition of the LDCs or the HIPCs). Obviously,
classifying countries becomes more relevant in the
context of policy discussions on designing benefits
for different groups of countries. However, distinguishing among the various motivations that give
origin to classifications may be of limited relevance.
Experience has shown that even classifications initially formulated for analytical purposes only end up
being used to set guidelines for international action.
That is the case, for example, with the World Bank´s
income classification which, together with other criteria, is used by a lot of donors (multilateral and bilateral) give countries access to official development
assistance and other forms of support (preferential
market access, for instance) and graduate countries
from these support systems.2
The proliferation of classification systems also indicates limitations of these systems in organizing the
international landscape in a satisfactory manner.
2
For example, the IDA allocation formula of the World
Bank considers the low-income status of countries, combined with the confidential Country Performance Institutional Assessment (CPIA) to determine eligibility to concessional finance from the Bank.
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In fact, most if not all, of existing available systems
share, to some extent, three basic problems. Firstly,
they are based on fragile analytical and doctrinal
foundation. In many cases, the criteria used to classify countries are not firmly based on insights from
the economic development literature. In several
instances, there is no explanation of the theoretical
foundations supporting the creation of the categories
proposed or of the criteria used to classify countries.
Secondly, the very process of classifying countries
implies a political and normative choice (even if hidden in technicalities) about what is understood as
development and about which problems or countries
deserve special attention by the international community. The classifications, therefore, imply political
choices; that explains why no single classification
attracts unanimous acceptance.
the group of low-income countries now includes just
36 countries, representing barely 11 per cent of the
world’s population.
Lastly, some of the adopted criteria have been of very
limited use in tracking the growing diversity of the
international system in a coherent way. The tension
between the need for any given criteria to be stable
and the rapidly changing reality of countries has led
to very noticeable difficulties in the classification
systems. In some of the categories, the level of diversity among countries belonging to a single group
has progressively grown, reducing the relevance of
the classifications themselves. The LDC category
is a case in point: the group currently includes not
only 31 low-income countries, but also15 lower-middle and two upper-middle countries, as well as one
high-income country which is earmarked to graduate
in 2017. Similarly, as shown in Harttgen and Klasen
(2012), the various attempts to define ‘fragile’ countries have led to groupings where the heterogeneity in
several developmental dimensions within the fragile
and non-fragile subgroups is much larger than the
average difference between fragile and non-fragile
states. In other cases, the problem is not so much
with the diversity within a given group but the progressive loss of relevance of some of the categories.
The income classification offered by the World Bank
is a case in point: as a result of the growth of the
world economy during the last decade, as well as of
the setting of absolute thresholds to classify income,
This paper is concerned with answering these questions. We argue that great caution should be exercised when devising new categories. We also argue
that the LDC category has a range of advantages as
a comprehensive classification system but needs to
solve the problems and incentives associated with
graduation. Notwithstanding this, we have problems
with creating additional categorizations that classify
countries in a comprehensive fashion and are then
used for aid allocation or general development rankings. Instead, we argue for issue-based classifications
which often lead to more clearly targeted special support measures to tackle the issue in question. Among
the existing comprehensive (or country-based) categories, we argue that the LDC classification has
significant advantages but it needs to solve some
problems and incentives associated with graduation.
The above shortcomings suggest that it is time for a
careful diagnosis of the current situation. It is also
necessary to ask whether there is a better way to
manage and organize the increasingly complex international system. Several issues come to fore: should
we persist in looking for a convincing classification
system for countries or, instead, should we focus on
identifying critical development issues and then define the corresponding ad hoc groups when discussing cooperative responses to these issues? How could
we improve the current categories to make them
more useful? How could we make classifying developing countries less complex and more rigorous?
This paper is divided into seven sections. Section 2
provides evidence about the growing diversity that
currently characterises the developing world; section
3 analyses the main features of the LDC category;
section 4 discusses the foundations and limitations
of selected classifications; section 5 analyses the
problems linked to the use of comprehensive classifications; section 6 discusses possible alternatives and,
finally, some closing comments are made in section 7.
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2 Increasing heterogeneity in the
Figure 1 illustrates the trend mentioned above. The
level of heterogeneity among countries is measured
by the coefficient of variation of the per capita GDP
(converted in PPP) for the period 1950-2008. The
world´s coefficient follows a visible increase after the
1980s up to mid-2000s, when it became stagnant. In
the case of the developing countries, the coefficient
of variation experienced a sustained increase from
1950, which became particularly intense after the
1980s. This trend underlines the increase of heterogeneity among developing countries.3
Figure 2 offers another way to illustrate the same
phenomenon. In this case, four density functions of
the countries’ GDP per capita (in PPP) are presented,
Using market exchange rates, leads to an even larger increase in heterogeneity of per capita incomes among developing countries.
1.3
Developing countries
World
1.2
1.1
1
0.9
0.8
0.7
2006
2002
1998
1994
1990
1986
1982
1978
1974
1970
1966
1962
1958
0.6
1954
Development theory was born in the 1950s, based
on the conviction that developing countries confronted a socially specific reality that was relatively
homogeneous within the group, but different from
that of the industrialised countries. In Corbridge´s
(2007) terms, the “principle of difference” justified
the need for development economics as a separate
field of studies. International aid was built on the
same assumption, implying the existence of a sharp
North-South divide. That was quite a reasonable assumption then. As estimated by Maddison (2007),
per capita income levels among European countries,
the USA, Canada, Australia, and New Zealand were
more than twice as high as the next richest group,
Latin America, and about 8 to10 times higher than
the levels observed in Asia and Africa. This reality
is very different nowadays: the heterogeneity among
developing countries has increased, with economies
located along a more continuous scale of levels of development (Alonso, 2013). As Hirschman (1981: 20)
argued, “the concept of a unified body of analysis
and policy recommendations for all underdeveloped
countries (…) became in a sense victim of the very
success of development and of its unevenness”.
3
Heterogeneity: coefficient of variation
among GDP per capíta (PPP)
developing world
1950
Figure 1
Source: Maddison (www.ggdc.net/MADDISON/oriindex.htlm)
with data for 1960, 1970, 1990, and 2008. The figure
reveals that the level of concentration in the lower tail
of the distribution (the left hand of the graph, corresponding to the bulk of developing countries) decreases over time; and, conversely, the level of dispersion in the upper tail (the richest countries) increases,
particularly in the last density function for 2008.
As a consequence of this trend, the very term “developing world” has lost part of its accuracy, as it
now refers to very different national realities. In fact,
Figure 2
Kernel density functions of GDP per capita (PPP)
10
Vertical axis: number of countries; Horizontal axis countries´
GDPpc in PPP relative to world average
1960
1970
1980
1990
8
6
4
2
0
0
1
2
3
4
Source: Maddison (www.ggdc.net/MADDISON/oriindex.htlm)
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some developing countries have a GDP per capita
that is closer to developed than to developing country levels. For example, Portugal (an OECD country) has a GDP per capita in PPP that is 1.35 times
that of Argentina’s (a developing country belonging
to the middle-income group); but Argentina has a
GDP per capita that is 15 times that of Zambia’s
(another middle-income country) and 43 times that
of Burundi’s (a low-income country). On the whole,
the ratio of per-capita income between the richest
and the poorest country is 3 to 1 for the group of
industrialised countries, but that relationship is close
to 50 to 1 for the developing world (both in PPP).
This heterogeneity is somewhat less when studying
non-income dimensions of well-being, such as life
expectancy, infant mortality or education outcomes.
But even here, the dispersion among developing
countries is very large, much larger than among rich
countries, and also larger than the average difference
between high-income and developing countries.
The need to respond to this growing heterogeneity is
challenging for any system of classification of the developing world. All taxonomies will have to choose
between two extremes: either defining too many
categories in order to preserve certain homogeneity
among countries within the groups, or defining only
a few categories and accepting high levels of heterogeneity among the countries within the groups. In
the first case the taxonomy will be rather difficult to
use (because of the large number of groups) and in
the second case it will be of limited use (because of
the heterogeneity within the groups). The challenge
is to find a well-defined option in-between.
3 The LDCs
The origins of LDC category dates back to the first
session of the United Nations Conference on Trade
and Development (UNCTAD I), held in Geneva
in 1964, when member countries recognized that
international policies and measures for promoting
the development needed to take consider individual country characteristics. Special attention was
to be “paid to the less developed among them [the
7
developing countries], as an effective means of ensuring sustained growth with equitable opportunity
for each developing country”. In 1969, the UN General Assembly acknowledged the need to alleviate the
problems of underdevelopment of the less developed
countries to enable them to draw full benefits from
the Second United Nations Development Decade
(IDS-II). In this context, it requested the Secretary-General to carry out a comprehensive examination of the special problems of underdevelopment
of developing countries and to recommend special
measures to tackle these problems. In 1970, a separate section is devoted to the “least developed among
the developing countries” within the framework of
the IDS-II. Subsequently, the Assembly invited the
relevant entities, including the Committee for Development Planning (the predecessor of the current
Committee for Development Policy (CDP)), to give
high priority to the question of the identification of
such countries and to report back on their findings.
In its reply to this request, the CDP indicated that
there was a substantial gap between the poorest and
the relatively more advanced developing countries.
The LDCs could not always be expected to benefit
fully or automatically from the measures adopted in
favour of all developing countries in IDS-II. They required special supplementary support to remove the
handicaps that limited their ability to benefit from
that initiative. Apart from very low level of per capita
income, which indicated severe financial constraints,
the CDP identified other common features among
the LDCs:
„„ Agriculture
or primary activities dominate the
generation of the GDP and in the absorption of
the labour force; predominance of subsistence activities (limited capacity for mobilizing domestic
resources) with low level of labour productivity,
in particular in food production;
„„ Limited
manufacturing and an undiversified
production structure also reflected in the high
export concentration and dependence on two or
three primary commodities and high volatility of
export earnings (upon which fiscal revenues rely).
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Accordingly, LDCs cannot benefit from trade
measures for manufactures unless these measures
are accompanied by support to stimulate industrial production and diversification;
„„ Low
level of education and an overall shortage
of skills to organize and manage development;
limited capacity to absorb technological advances; poor health and nutrition outcomes;
„„ Lack
of adequate physical and institutional infrastructure for development;
„„ Economically
small (by population or national
income), undiversified natural resource base
(CDP, 1971).
Three indicators were selected as criteria to classify
countries as LDCs:
„„ GDP
per capita, which gives a general indication
of the dimensions of poverty and overall level of
development;
„„ The
share of manufacturing in GDP, which
conveys information on the extent of structural
transformation of the economy; and,
„„ Adult
literacy rate, which indicates the size of the
base for enlarging a skilled labour force.
To these three indicators, CDP added the average
rate of GDP growth (real terms) to facilitate decisions on border line cases. The application of the
criteria, done in a flexible manner, led to a suggested
list of 25 countries, to be reviewed again in 1975.
The Committee’s list was approved by both the Economic and Social Council and the General Assembly
in 1971.
With respect to special measures in favour of LDCs,
CDP suggested a balanced, country-by-country
approach covering both social and economic constraints to development and which would require
coordination of actions at both the national and
international levels. Three main areas of support
are suggested: (i) Technical cooperation to improve
countries’ capacity to widen its development efforts; (ii) Financial assistance at appropriate terms
(long term, grace period and concessional rates of
interest); and, (iii) International trade measures and
regional co-operation to allow for the expansion of
production base in the countries given their limited
domestic markets.
3.1. The category: criteria and processes
a) The LDC list
The LDC category currently comprises 48 countries
(see table 1). The list grew over the years as countries
gained independence and faced severe developmental
challenges which were, in some cases, compounded
by the devastating effects of independence war and
conflict. Eritrea, Timor-Leste and South Sudan are
cases in point. Others were added due to a sustained
deterioration in economic conditions (Angola, Liberia and Senegal). In the early years of the category,
there were no systematic reviews of the list. Decisions of inclusion often followed an assessment of
specific countries— on the base of the established
criteria— but which was initiated by a request from
the country itself through ECOSOC or the General
Assembly (Cape Verde, Comoros, Djibouti, Equatorial Guinea, Kiribati, Mauritania, Sierra Leone,
Togo, Tuvalu, and Vanuatu). Not all countries forwarded for CDP’s consideration were found eligible
for inclusion, either because they did not meet the
criteria or because the Committee was unable to
make a decision in view of lack of corroborating data
(Angola, Liberia, Sao Tome and Principe) and opted
to defer its decision. Inevitably most, if not all, of
these countries eventually were included in the list.
In other instances, the Committee on its own initiative reviewed specific country cases as additional and
more reliable information became available which
confirmed that countries should be added to the list
(Bangladesh, Central African Republic and Yemen).
A systematic review –the first of the triennial reviews—was conducted in 1991, the year when
major refinements were introduced to the criteria
(introduction of two composite indices on structural
handicaps, the precursors of human assets index,
HAI, and economic vulnerability index, EVI). As a
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Table 1
List of Least Developed Countries as of May 2014
Country
Year of inclusion
Country
Year of inclusion
Afghanistan
1971
Madagascar
1991
Angola
1994
Malawi
1971
Bangladesh
1975
Mali
1971
Benin
1971
Mauritania
1986
Bhutan
1971
Mozambique
1988
Burkina Faso
1971
Myanmar
1987
Burundi
1971
Nepal
1971
Cambodia
1991
Niger
1971
Central African Republic
1975
Rwanda
1971
Chad
1971
Sao Tome and Principe
1982
Comoros
1977
Senegal
2000
Dem. Rep. of Congo
1991
Sierra Leone
1982
Djibouti
1982
Solomon Islands
1991
Equatorial Guinea a
1982
Somalia
1971
Eritrea
1994
South Sudan
2012
Ethiopia
1971
Sudan
1971
Gambia
1975
Timor-Leste
2003
Guinea
1971
Togo
1982
Guinea-Bissau
1981
Tuvalu b
1986
Haiti
1971
Uganda
1971
Kiribati
1986
United Rep. of Tanzania
1971
Lao PDR
1971
Vanuatu a
1985
Lesotho
1971
Yemen
1971
Liberia
1990
Zambia
1991
Botswana
1994
Maldives
2011
Cape Verde
2007
Samoa
2014
Memo item: graduated countries
a Scheduled to graduate in 2017
b Recommended to graduate by the CDP in 2012. Ecosoc decision postponed to 2015
result, five countries joined the list (Cambodia, D.R.
Congo, Madagascar, Solomon Islands and Zambia).
Ghana was also recommended for inclusion in 1991
but declined to join.4
The 1991 review also established graduation rules.
Among the five countries meeting graduation thresholds in 1991, only Botswana was recommended to
graduation which was to take place three years later.
4
Besides Ghana, other countries declined to be included
in the list at subsequent triennial reviews (Zimbabwe and
Papua New Guinea).
Since 1994, three other countries graduated from
the category (Cape Verde, Maldives and Samoa),
while two other countries (Equatorial Guinea and
Vanuatu) are scheduled to graduate in 2017(see table
1). Graduation is faced with much concern by most
LDCs, and some countries recommended to graduate have tried to delay the process at the intergovernmental level or to persuade the decision-making
bodies that graduation was premature and unwarranted. Most of countries’ concerns had to do with
uncertainties surrounding the withdrawal of LDC
specific measures, despite the fact that there has
C D P BAC KGR O U N D PA PER N O. 21
10
been a great deal of misunderstanding of what these
measures actually are and, with very few exceptions,
available measures have often not been used.5 Graduated countries have been routinely monitored by
the CDP and thus far, there has been no noticeable
deterioration to the development progress of those
countries due to graduation (CDP reports: 2009,
2012 and 2014).
b) The criteria
Since it was first applied in 1971, the criteria to
identify LDCs was refined and updated on several
occasions to incorporate new development concerns,
relevant advances in economic theory and greater
data availability. Yet, the criteria have always included the three components mentioned above: income,
social progress and economic vulnerability. Inclusion
and graduation procedures have also evolved over
the years.
The CDP defines LDCs as low-income countries
suffering from severe structural handicaps to sustainable development, whose identification is based
on three criteria:
a. Per capita gross national income (GNIpc), converted by exchange rates in constant terms; and
two composite indices of structural handicaps:
b. The human assets index (HAI), which gives an
indication of the availability and quality of human capital; and
c. The economic vulnerability index (EVI) which
measures economic structural vulnerability to
exogenous shocks (figure 3).6
5
6
See various ex-ante impact assessment reports prepared by
DESA discussed further below and available from the CDP
website.
Detailed information on how the indices are calculated
and respective data sources are available at the CDP website http://www.un.org/en/development/desa/policy/cdp/
ldc_info.shtml and UNDESA/CDP, 2011. For a comprehensive historical background see Guillaumont (2009).
Every three years, the CDP undertakes a review of the
list of LDCs, on the basis of which it advises the Economic and Social Council on countries that should
be added to or those that could be graduated from
the list. Threshold levels for each of the three criteria
are defined, with the thresholds for graduation established at a higher level than those for inclusion. To be
added to the category, a country must satisfy the inclusion threshold levels of all three criteria and have
a population smaller than 75 million people. To be
eligible for graduation, a country needs to fail two,
rather than only one, criteria. Alternatively, a country may be eligible to graduation when its GNI per
capita exceeds at least twice the graduation threshold
on an anticipated sustained manner.
Additional information is used to support the CDP
decisions besides the indicators in the criteria. In
the case of inclusion, a Country Assessment Note is
prepared by UN Department of Economic and Social Affairs (UN-DESA). The Note pays particular
attention to the reasons for the recent deterioration
of economic and social conditions in the country
in order to determine whether that deterioration is
due to structural or transitory factors. In the case of
graduation, UNCTAD prepares a Vulnerability Profile (VP) of that country, which provides an overall
background of the country’s economic and development situation. The VP also identifies vulnerabilities
not covered by the EVI, as well as other structural
features of the country that are of relevance for the
graduation decision. In addition, DESA prepares an
Ex-ante Impact Assessment (IA) of the likely consequences of graduation for the country’s economic
growth and development, in particular on the expected implications of the loss of LDC status with
regard to development financing, international trade
and technical assistance.
c) The intergovernmental process
The CDP holds consultations with countries on inclusion and graduation decisions. Inclusion requires
approval from the country concerned, whereas graduation does not. Additionally, graduation requires
L D C A N D OT H ER CO U N T R Y G R O U PI N GS: H O W U S EF U L A R E C U R R EN T A PPR OAC H E S
TO C L A S S I F Y CO U N T R I E S I N A M O R E H E T ER O G EN E O U S D E V ELO PI N G W O R L D?
11
Figure 3
HAI and EVI
Percentage of population undernourished (1/4)
Human
Asset
Index
Mortality rate for children aged five years or under (1/4)
Gross secondary school enrolment ratio (1/4)
Adult literacy rate (1/4)
Exposure index
(1/2)
Economic
Vulnerability
Index
Size
sub-index (1/8)
Population (1/8)
Location
sub-index (1/8)
Remoteness (1/8)
Economic structure
sub-index (1/8)
Environment
sub-index (1/8)
Merchandise export concentration (1/16)
Share of agriculture, forestry,
and fisheries (1/16)
Share of population in low elevated
costal zones (1/8)
Trade shock
sub-index (1/4)
Instability of exports of
goods and services (1/4)
Natural shock
sub-index (1/4)
Victims of natural disasters (1/8)
Shock index
(1/2)
Source: CDP Secretariat.
Note: Numbers in parenthesis denote the weight of each indicator in the composite index
that the country meets graduation thresholds in two
consecutive triennial reviews. CDP recommendations on inclusion and graduation are forwarded to
the Economic and Social Council for endorsement.
Once endorsed, the General Assembly must take
note of the recommendation before a country joins
or leaves the category. Inclusion is immediate, while
graduation takes place only three years after the GA
acted on the recommendation. This provides the
country with time to prepare a transition strategy,
in cooperation with its development partners. The
strategy—to be implemented after the country has
officially graduated—aims at ensuring that the phasing out of support measures resulting from its change
of status will not disrupt the country’s continued
development efforts as mandated by General Assembly resolutions 59/209 and 67/221. During this three
year period, the country is still an LDC and has access to all special measures available to the category
(UNDESA/CDP, 2008).7
3.2. How useful has the LDC category been?
Currently, the main support measures extended to
countries with LDC status vary among development
7
On smooth transition see also CDP Secretariat (2012).
Strengthening Smooth Transition for the Least Developed
Countries. CDP Background Paper Series No. 14, available
from http://www.un.org/en/development/desa/policy/cdp/
cdp_background_papers/bp2012_14.pdf.
12
partners and relate primarily to trade preferences
and the volume of official development assistance
(ODA). These measures fall into three main areas:
(a) international trade; (b) official development assistance, including development financing and technical cooperation; and (c) other forms of assistance
(UNDESA/CDP, 2008). A critical evaluation of the
usefulness and effectiveness of these measures is beyond the objectives of this paper. Suffice it to say that
the special support granted to LDCs, including trade
preferences within WTO, and earmarked support
from the UN system has not worked as intended and
has generated very limited results (CDP, 2010).
There is a significant problem with the way the
support measures are designed, namely, they do not
take into account the diversity within the group and,
therefore, they are not adequately tailored to circumstances prevailing at the country level. Part of this
diversity has to do with the asymmetries in the inclusion and graduation decisions as discussed above.
In fact, the current list of LDCs – not considering
those already recommended or identified for graduation for the first time—includes 17 countries that
no longer meet the inclusion criteria, that is to say,
they do not meet the inclusion thresholds in all three
criteria. Accordingly, not all LDCs are low-income
economies. As seen above, the current LDC list also
includes 15 lower-middle-income, two upper-middle-income and one high-income economies (as per
the 2013 World Bank classification). LDCs share
many common features and, on average, have poorer outcomes in terms of income, human capital, or
structural vulnerability than the average of developing countries, but these outcomes may reflect different circumstances at the country level (CDP, 2010).
Among the current 48 LDCs, 8 are islands, while
16 are land-locked economies. There is wide range
in population size: from tiny Tuvalu to Bangladesh.
Twenty-three LDCs were identified to be in conflict
or post-conflict situations in 2010 (Cortez and Kim,
2012). Economic structures also differ greatly across
LDCs: six are fuel exporters, other 6 are manufacture exporters (largely textiles and garments), while
10 are mineral exporters, 8 are agricultural exporters
C D P BAC KGR O U N D PA PER N O. 21
and 10 are service exporters (classified according to
which export category accounts for at least 45 per
cent of exports of goods and services).
Another issue has to do with how much priority the
LDC category influences donor’s allocation decisions,
and how much donors honor their allocation commitments. Few countries have consistently met the commitment of allocating 0.15 to 0.20 per cent of their
GNI to LDCs over the years. On the other hand,
commitments in terms of quality of ODA provided
(grant element, untying, etc.) were generally met.
Overall, however, the category does not seem to
have attracted special attention by bilateral donors.
While the introduction of the category drew donors’
attention in the 1970s, momentum was not maintained in the 1980s and the 1990s when ODA flows
to LDCs grew less (or contracted more) than flows
to other developing countries. This trend seems to
have been reversed during 2000-2011, but it is not
clear whether the change is due to increased recognition of the category or due to the adoption of the
MDGs with its emphasis on poorer countries and
on social targets whose indicators are included in
HAI. Several other factors are taken into account in
allocative decisions by donors, including conflict and
post-conflict situation, development partnership history, governance performance, etc. In fact, the results
of an econometric exercise indicate that a positive
and significant correlation between ODA flows and
the level of income per capita and HAI, while the
association is statistically insignificant in the case of
EVI (CDP, 2010). The results of a UN DESA-CDP
survey on 17 donor countries confirm these overall
findings (UN-DESA/CDP, 2011a). While the share
of multilateral ODA going to LDCs is larger than
the share allocated to LDCs by DAC donors (see
figure 4), multilateral flows to LDCs seemed to have
followed similar trends. Yet, they contracted more
than the flows going to other developing countries
in the 1990s and recovered in the 2000s but not
sufficiently to compensate for the previous decline.
Moreover, not all international organizations fully
acknowledge the category or have programme specifically designed for the category. In as much as LDC
L D C A N D OT H ER CO U N T R Y G R O U PI N GS: H O W U S EF U L A R E C U R R EN T A PPR OAC H E S
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TO C L A S S I F Y CO U N T R I E S I N A M O R E H E T ER O G EN E O U S D E V ELO PI N G W O R L D?
Figure 4
ODA flows to LDCs, 1981-2011
Percentage share and current $ million
35,000
30,000
50
25,000
Per cent
40
20,000
30
15,000
20
$ million (current)
60
10,000
5,000
0
2011
2010
2009
2008
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
0
2007
10
2006
Multilateral
DAC
Multilateral ($ million)
DAC ($ million)
Source: OECD/DAC online database.
handicaps coincide with the specific areas addressed
by these organizations, the countries receive priority.
At the same time, there are no LDC-specific programmes in the World Bank, IMF or the regional
development banks.
It thus seems that the LDC category—despite being
the only category of countries officially recognized
by the UN General Assembly— has not been fully
adopted by the international development community or fully incorporated in the global regimes
where LDCs operate. This brings adverse development impacts on LDC countries and compromises
the effectiveness of any special measure adopted in
their benefit (UNCTAD, 2010).
4 Other classifications
4.1. The World Bank’s country classification
The World Bank’s income groupings are originally
based on the Bank’s operational lending categories
and related to a country’s eligibility for concessional
financing. Initially, the World Bank defined eligibility through judgment-based criteria, but after a few
years it decided to move toward a more rule-based
system, taking into account the economic capacity
of countries as a criterion for defining lending conditions from the Bank.8 GNI per capita was considered to be the best broad measure of a country’s
economic capacity. This was partly because other
variables related to development achievements (such
as infant mortality, literacy or poverty) seemed to be
highly correlated to GNI per capita. While this is a
case on average, there are many outliers as has been
pointed out by Drèze and Sen (1989) and UNDP
(1990), among many others. In any case, the World
Bank chose GNI per capita as the main criterion for
classifying countries.
In the early 1980s, the IBRD put forward its
analytical country classification related to its operational lending categories. The initial classification
8
In fact, in 1960, when the International Development Association (IDA) was created, two groups of countries were
defined: Part I: countries that were expected to contribute
financially to IDA, and Part II: countries that could be
expected to draw on the concessional resources. But the
definition of these two lists was a political (more than technical) exercise in which an initial proposal was submitted
for negotiation to the various executive directors. In 1964
an income threshold was defined for eligibility to access
IDA resources (Nielsen, 2011, taken from Mason and Asher, 1973).
C D P BAC KGR O U N D PA PER N O. 21
14
distinguished between developing countries, industrialised countries and capital-surplus oil-exporting
countries.9. In 1989, the current classification (low,
lower-middle, upper-middle and high income) was
defined. The process of setting the original per
capita income thresholds for defining categories for
countries was related to the Bank’s previous lending activities, although the specific criteria used for
determining the thresholds have never been published. Thereafter, the original thresholds have been
updated to incorporate the effects of international
inflation (measured by the average inflation of Japan, the United Kingdom, the United States and the
Euro zone).
As the World Bank explains, the categories were
defined as following. The economies whose GNI per
capita falls below the Bank’s operational cut-off for
“civil works preference” are classified as low-income
countries (LICs); those economies whose GNI per
capita is higher than the LICs’ threshold, but lower
than the threshold for 17-year IBRD loans, are classified as lower-middle income countries (LMICs); and
those economies whose GNI per capita is higher than
the LMICs’ threshold, but lower than the threshold
for high-income economies, are classified as upper-middle income countries (UMICs). The border
between middle-income and high income was redefined in 1989, establishing the threshold (in a discretionary way) at $6000 per capita in 1987 prices.10
For classifying countries, GNI per capita in US
dollars is calculated using the World Bank’s Atlas
conversion factor. This factor takes into account in
any year the average of the country’s exchange rate
for that year and those for the two preceding years,
adjusted for the difference between the rate of inflation in the country and in a group of industrialized
9
The World Bank initially used membership of the OECD,
with some unexplained exceptions, as the criterion to define the category of industrialised countries.
10
It has not been explained why the World Bank preferred
GNI per capita rather GDP per capita as a criterion, although there are good reasons to use an income-based concept such as GNI rather than a production-based concept
such as GDP.
economies11. This last rate of inflation is measured
by the change in the Special Drawing Rights (SDR)
deflator; and this deflator is a weighted average (in
terms of the amount of each country’s currency in
one SDR unit) of the selected economies’ GDP deflators in SDR terms. Weights can vary over time
in relation to the composition of the SDR or the
relative exchange rates of each currency. By using
three-year averages, the Atlas method is trying to
reduce the bias introduced by short-term exchange
rates fluctuations.
There are, however, two more serious problems. Firstly, as long as there has been a significant shift in the
distribution of the world wealth, a wider spectrum
of countries, including China and other emerging
economies, should be taken into account in the determination of international inflation. Secondly, as
is well-known, market exchange rates underestimate
purchasing power in low-income countries (due to
the systematic undervaluation of non-traded goods
and services in these countries). The International
Comparison of Prices Project has, since the 1980s,
provided purchasing power parity adjusted levels of
GNI which are, for example, used by the IMF in its
annual World Economic Outlook and by UNDP in
its Human Development Index. While the PPP estimates of GNI provide a more realistic picture of relative per capita incomes across the world, they are not
without problems.12 Thus the choice to use the Atlas
11
Initially, international inflation was defined by the average
rate of inflation in the G-5 countries; after 2000, the average rate of inflation of the Euro Zone, Japan, and the
United States was used.
12
Among the main problems, PPP factors of conversion are
estimated based on complex and contested procedures. Second, they are only valid for particular benchmark years.
Comparing per capita incomes across benchmark years
can, however, lead to estimates that are inconsistent with
the real growth rates measured in national currencies in
the intervening period. Also, sometimes the estimates from
benchmark years have led to massive revisions of PPP adjusted per capita income levels. For example, in the revisions made as a result of the 2005 benchmark year, China’s
and India’s PPP adjusted GDP per capita was estimated to
be 40% lower than previously believed. For a discussion,
see Klasen (2013), Reddy and Pogge (2009).
L D C A N D OT H ER CO U N T R Y G R O U PI N GS: H O W U S EF U L A R E C U R R EN T A PPR OAC H E S
15
TO C L A S S I F Y CO U N T R I E S I N A M O R E H E T ER O G EN E O U S D E V ELO PI N G W O R L D?
method by the World Bank has clear drawbacks and
biases, but the alternative also has some drawbacks.
income is approximately 8.1 per cent of that which
defines high-income countries; and the border between lower-middle and upper-middle is 32.3 per
cent of that which defines high-income countries. As
the thresholds are constant, the classification criteria
are subject to a downward trend relative to average
world income (figure 6). In fact, from 1987 to 2010,
the level of each threshold about doubled, but the
world per capita income increased by 2.3 times.
In any case, the use of GNI per capita Atlas method
introduces well-known biases in determining the
real development level of countries development in
comparative terms. If we compare the variable used
to define World Bank´s categories with countries’
levels of GDP per capita or GNI per capita, both
in PPP terms, we could observe that an important
group of countries move outside of their respective
category (figure 5 a and b). In fact, if one used the
World Bank thresholds and considered PPP incomes,
there would hardly be any low-income country and
many lower-middle income countries would move
to the upper-middle income category. But as can be
seen, there would not only be a general shift upwards
(in PPP terms), but this differs greatly by country,
suggesting that the biases of market exchange rates
inherent in the Atlas method are not linear, but
rather heterogeneous, making this categorization
particularly unreliable.
This system has two related problems: if the world
income level continues to grow, (i) the thresholds
risk losing their initial significance: for example, the
high-income threshold could fall below the average
world income level in the future, and; (ii) the number
of countries belonging to the lower levels of income
categories will fall further (and those belonging to
higher levels of income will increase). That is what has
happened in the last 10 years. Although the number
of reported countries has changed over time, the proportion of those belonging to the low-income and lower-middle income categories has reduced significantly,
while the proportion of those belonging to the upper-middle and high income categories has increased.
Based on GNI as the income concept and the Atlas
method for exchange rates, all thresholds for the
different income categories have been maintained
constant in real terms over time. Therefore, the
relationships between the thresholds are constant
too. The threshold between low and lower-middle
In 2000, LICs (some 64 countries) represented 40
per cent of the world’s population, and close to 11 per
cent of the aggregated world GDP, when measured in
PPP (see table 2). However, over the period 2000 to
Table 2
Changes in the World Bank´s income categories (1990-2012)
Number of countries
1990*
Population (in %)
2000
2010
2012
64
43
32
Low Income
Countries
49
Lower-Middle
Income Countries
57
55
55
56
Upper-Middle
Income Countries
31
38
46
54
Middle-Income
Countries
88
93
101
110
High-Income
Countries
44
50
67
71
Total
184
207
211
213
GNI (PPP) (in %)
1990*
2000
2010
2012
1990*
2000
2010
2012
57.9
40.6
11.9
12.0
4.8
11.0
1,3
1,4
11.9
33.8
36.0
35.6
4.3
21.1
12.0
11.5
8,7
10.7
35.7
33.9
7.0
13.3
32.0
30,0
20.6
44.5
71.7
69.5
10.9
34.2
44.0
41.5
15.5
14.9
16.4
18.5
72.1
55.7
55.1
57.5
100
100
100
100
100
100
100
100
Note: 1990: GNI in Atlas method, countries with less than 1 million inhabitants included; without information on Cuba, North Korea and former URSS.
Source: World Development Report, several years (The World Bank).
C D P BAC KGR O U N D PA PER N O. 21
16
Figures 5a and 5b
GNI per capita PPP and GNI per capita Atlas Method
50000
Percentage share and current $ million
LIC
LMIC
UMIC
HIC
45000
GNI per capita PPP
40000
35000
30000
25000
20000
15000
10000
5000
0
4085
12615
Countries ordered by GNI per capital (Atlas method)
1035
GDP per capita PPP and GNI per capita Atlas Method
50000
LIC/LMIC Threshold
45000
LMIC/UMIC Threshold
UMIC/HIC threshold
LIC
LMIC
UMIC
HIC
40000
GDP per capita PPP
35000
30000
25000
20000
15000
10000
5000
0
1035
4085
Countries ordered by GNI per capita (Atlas Method)
Source: OECD/DAC online database.
12615
L D C A N D OT H ER CO U N T R Y G R O U PI N GS: H O W U S EF U L A R E C U R R EN T A PPR OAC H E S
TO C L A S S I F Y CO U N T R I E S I N A M O R E H E T ER O G EN E O U S D E V ELO PI N G W O R L D?
Figure 6
Income thresholds over World GNI per capita average
2.5
2
LMICs threshold
UMICs threshold
HICs threshold
1.5
1
0.5
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
0
Source: The World Bank: World Development Report (several years).
2012, a great shift occurred among these groups. As a
consequence, by 2012, a smaller number of LICs (32
countries) represented just 12 per cent of the world
population, and a minuscule 1.4 per cent of world
GDP (PPP). On the other hand, between 2000 and
2012, MICs (93 countries in 2000 and 110 in 2012)
increased their share of the world’s population from
45 to 70 per cent, and their contribution to world
GDP (PPP) rose from 34 to 42 per cent. Thus, the
majority of the population of the developing countries no longer live in LICs (as in the past), but in
the broader and more heterogeneous group of MICs.
This is also the main reason why the majority of the
world’s income poor (using the $1.25 a day classification) now live in MICs (Sumner, 2012).
In summary, while the World Bank’s income classification has the advantage of simplicity, there are a
range of problems associated with the income indicator and the way groups are being formed.
4.2. Small Island Developing States (SIDS)
There is no UN officially recognized SIDS category.
Nonetheless, the challenges of small islands have
been on the international agenda for quite some
time. Since 1985, the World Bank has been applying a “small island exception” in determining IDA
eligibility. The Commonwealth Secretariat has a tradition of focusing a significant part of its activities
17
on small islands and small states. The Non-aligned
Movement has also pursued a specific focus on small
island developing countries and so has the European
Union through the ACP framework (Hein, 2004).
The WTO recognizes the challenges and risks faced
by small vulnerable economies (SVE), both insular and continental countries. In 2002 a special
programme on SVE was created as a follow-up of
Doha to help the integration of these economies in
the multilateral trading system and to monitor the
proposals by these countries submitted to the various negotiating groups within WTO. While there
is an official definition of what WTO understands
as SVEs, the existence of such definition does not
imply the creation of an official subgroup or category
of members.13
Within the UN, the term SIDS starts to gain currency with the adoption of Agenda 21 at the UN
conference on sustainable development in Rio de
Janeiro in 1992 and its section on “sustainable development of small islands” (chapter 17, section G). In
1994, the United Nations adopted the Barbados Programme of Action for the Sustainable Development
of SIDS (BPOA), which identified 15 priority areas
and the necessary actions to be taken at the national,
regional and international levels. Progress on implementation of the BPOA was assessed by the UN in
Mauritius in 2005 when the Mauritius Strategy for
the Further Implementation of the Programme of
Action for Sustainable Development of Small Island
Developing States (MSI) was adopted. The MSI
identifies critical areas for further attention in the
BPOA and includes emerging issues that constitute
development challenges considered to be relevant
to SIDS. Thus, although there are no SIDS-specific
international measures, these two programmes give
the overall framework within which international
support for SIDS operates.
13
The term applies to applies to WTO Members with economies that, in the period 1999 to 2004, had an average share
of (a) world merchandise trade of no more than 0.16 per
cent or less, and (b) world trade in non-agricultural products of no more than 0.1 per cent and (c) world trade in
agricultural products of no more than 0.4 per cent
18
The fundamental development challenges of SIDS,
as described in literature, are related to size and location. The size issue relates to the smallness of SIDS,
regardless of the way size is defined. Population is
the most commonly used measure of country size,
although land area and volume of economic activity
are also relevant indicators. The second major development constraint relates to location as many of
these economies are remote from major international
markets and/or located in zones subject to adverse
weather phenomena.
However, development challenges emanating from
these two features are also confronted by other developing countries (small domestic markets, reduced
possibilities for economies of scale, limited natural
endowments, vulnerability to adverse natural phenomena, remoteness, exposure to external economic
shocks, import dependency, narrow export base,
etc.) which makes identifying this group of countries on the base of their developmental challenges,
or establishing a distinct category deserving special
support measures, a complex issue (Hein, 2010;
Bruckner, 2013). Moreover, there is no agreement of
how much small a country should be to be considered as a “small developing economy”. Membership
in the group is largely by self appointment. Besides
the programmes of action for SIDS, which specify
a partnership between SIDS and development partners, there are no SIDS-specific support measures,
no formal and measureable commitments exclusively
conceived for this group of countries. Thus far, there
has not been sufficient political support across the
UN member States for the creation of a criteria-defined category. Donors, though sympathetic to the
SIDS challenges, seem to have no desire to create
additional country categories, or do not think it justified to have such a category. Developing countries,
in turn, are often concerned that the creation of a
particular category with specific benefits will be in
detriment of the support they currently receive as
a group. Finally, there is no consensus within the
SIDS themselves (latu sensus defined, see below) on
the need of a special category.
C D P BAC KGR O U N D PA PER N O. 21
As a result, several unofficial lists of SIDS co-exist. The
lists by UN-DESA and Office of Higher Representative for LDCs, land-locked developing countries and
SIDS (OHRLLS) are based on the membership of
the Association of Small Island States (AOSIS). The
AOSIS list includes entities where most of the land
mass is not situated on an island (for example Belize,
Guinea-Bissau, Guyana, Suriname) and had become
members of the association due to being “low-lying
coastal states”. It also includes several entities that
are non sovereign states (e.g., New Caledonia). The
OHRLLS list is based on AOSIS membership, but it
differentiates UN member States from non-member
States and adds Bahrain. UNCTAD’s list is more restricted, being limited to 29 States, with populations
not exceeding 5 million people, except for Papua
New Guinea (see table 3).
With self-selection underlying the composition of
the group, heterogeneity prevails. A cluster analysis
and principal component exercise indicated that
while SIDS (UN-DESA list but reduced to 33 countries due to data limitations) are more vulnerable to
economic and natural shocks than other developing
countries, there is a great deal of diversity. Geography is a major factor behind this, but there is substantial variation within and across SIDS clusters
with respect to various vulnerability dimensions.
Even within the more homogenous subgroups of
SIDS, there seems to be necessary to have support
measures designed to address specific development
challenges (Bruckner, 2013).
4.3 Land-locked Developing Countries
(LLDCs)
Land-locked developing countries constitute the
third group of developing countries receiving special
attention from the UN General Assembly and the
UN system. Transport and transit issues of landlocked and transit countries were first addressed by
the United Nations Conference on Transit Trade of
Land-locked Countries in 1965, which was convened
at the request of the General Assembly. The Conference adopted the Convention on Transit Trade of
Landlocked Countries, a multilateral treaty on rules
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Table 3
SIDS by UN-DESA, OHRLLS and UNCTAD
American Samoa
Mauritius
Anguilla
Micronesia (Federated States of)
Antigua and Barbuda
Montserrat
Aruba
Nauru
Bahamas
Netherlands Antilles
Barbados
New Caledonia
Belize
Niue
British Virgin Islands
Palau
Cape Verde
Papua New Guinea
Commonwealth of the Northern Mariana Islands
Puerto Rico
Comoros
Saint Kitts and Nevis
Cook Islands
Saint Lucia
Cuba
Saint Vincent and the Grenadines
Dominica
Samoa
Dominican Republic
Sao Tome and Principe
Fiji
Seychelles
French Polynesia
Singapore
Grenada
Solomon Islands
Guam
Suriname
Guinea-Bissau
Timor-Leste
Guyana
Tonga
Haiti
Trinidad and Tobago
Jamaica
Tuvalu
Kiribati
United States Virgin Islands
Maldives
Vanuatu
Marshall Islands
Note: DESA: used to monitor sustainable development trends (51 countries); UNCTAD: used for analytical purposes (29 countries) with
countries in italic font; OHRLLS: Member States that are SIDS (38 countries) with countries in underlined font plus Bahrain.
for LLDCs to transport goods to and from seaports.
In 1970, the General Assembly, within the context
of the Second UN Development Decade (IDS-II),
included a section on special measures in favour of
LLDCs. It calls on national and international financial institutions to “accord appropriate attention to
the special needs of land-locked developing countries
in extending adequate financial and technical assistance to projects designed for the development and
improvement of the transport and communications
infrastructure needed by these countries […].” In
1995, the GA endorsed the “Global framework for
transit transport cooperation between land-locked
and transit developing countries and the donor community”. The framework was conceived by a group
of governmental experts to enhance the transit and
transport systems of LLDCs and to facilitate their
integration in the multilateral trading system. In
2003, a UN global conference is convened in Almaty, Kazakhstan to review the situation of transit
transport systems, including the implementation
of the Global Framework for Transit Transport
Cooperation of 1995 and to formulate appropriate
policy measures aimed at developing efficient transit
C D P BAC KGR O U N D PA PER N O. 21
20
transport systems in LLDCs. A Programme of Action is adopted as a result. It focuses on transport infrastructure development and maintenance, transit
policies and trade facilitation measures.
The approach towards LLDCs seem to be similar
to the approach on SIDS in the sense that there is
a specific major framework umbrella governing the
partnership relations among the various stakeholders, as well as there is identification of problems to
be tackled and the ways to go about them, but no
group-specific support measures. Conversely, the
identification of developing countries that are LLDCs is much less problematic than in the case of
SIDS. There is a unique list of developing countries
recognized as LLDCs (31 countries, see table 4), but
these countries do not constitute a category with inclusion and graduation rules as it is the case of the
LDCs. Moreover, the LLDC programme of action
specifically targets to the particular issue of transport
and transit, and does not address the various other
dimensions of development challenges confronted
by these countries. As such, it is a programme devoted to addressing a very particular need of a group of
developing countries.
Table 4
Land locked developing countries
Afghanistan
Malawi
Armenia
Mali
Azerbaijan
Moldova
Bhutan
Mongolia
Bolivia
Nepal
Botswana
Niger
Burkina Faso
Paraguay
Burundi
Rwanda
Central African Republic
Swaziland
Chad
Tajikistan
Ethiopia
Turkmenistan
Kazakhstan
Uganda
Kyrgyzstan
Zambia
Lao PDR
Zimbabwe
Lesotho
Note: Countries in italics are also LDCs..
4.4. Fragile States
In the late 1990s and early 2000s, a new category
of ‘fragile’ states was created. Initially, fragile states
largely referred to countries in conflict or post-conflict, following the pioneering work of Collier and
his co-authors on the economic costs of conflicts
(for example, Collier and Hoeffler, 1998). To this,
a group of countries was added, in which the state
had basically ceased to function, or in which the
writ of the state did not extend much beyond the
capital city. Lastly, this discussion began to relate
to an overlapping (but larger) group of countries,
which the World Bank referred to as ‘low-income
countries under stress’ (LICUS).14 These countries
have increasingly become a focus of some donors
concerned about meeting the MDGs (Stewart and
Brown, 2009; World Bank 2011).
The factors that lead to state fragility are diverse and
manifest themselves in a variety of forms (see Carment et al. (2006) and Francois and Sud (2006) for
literature overviews). Hence, the fragile states agenda
is very broadly defined in terms of the emphasis on
human security and peace building, the concern
with poor development performance and state effectiveness, and the concern for the relationship
between underdevelopment and insecurity.15
In recent years, a large body of literature has attempted to conceptualise and to define fragile states more
precisely (for example, Stewart and Brown, 2009;
14
Apart from posing challenges for MDG progress, fragile
states also pose challenges for development and aid policies as traditional models of engagement often do not work
in fragile states. For example, the capacity to absorb aid
is found to be lower in fragile states than in non-fragile
states (McGillivray and Feeny, 2007), while the need for
aid is, at the same time, considerably greater in fragile states
than in non-fragile states. Consequently, in recent years,
the international community has made a significant effort
in attempting to develop strategies and instruments that
effectively address the particular problems of fragile states
(for example, World Bank, 2006a, 2011; ODI, 2006; Dollar and Levin, 2005).
15
For the political dynamics on how fragility affects human
development, see, for example, Jakson and Rosberg (1982),
Migdal (1998), and Collier (2000).
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World Bank, 2006; ODI, 2006, ODI, 2010; DFID,
2005, USAID, 2005; Carment et al., 2006; OECD,
2008; Mata and Ziaja, 2009; CIFP, 2008; Rice and
Patrick, 2008). However, a uniform approach is hindered by both a lack of data and a suitable framework
to classify ‘fragile states’. In addition, many definitions do not consider the structural causes for fragility, nor do they differentiate between short-term
shocks and long-term problems in individual fragile
states. The selection of indicators to define fragile
states is clearly crucial for the validity of the list of
fragile states (Adcock and Collier, 2001). Existing
lists differ by their theoretical background concepts,
but most concepts measure fragility along the four
main dimensions: security, political, economic, and
social dimensions. These lists sometimes use objective criteria, sometimes value judgement seems to be
involved and, other times, a set of proxies is used to
generate the list (see, also, Bourguignon et al., 2008).
Since 2006, the World Bank generated a list of fragile states using the CPIA rating of countries, thereby
renaming countries previously referred to as LICUS
(World Bank, 2006a, 2007a, 2009a) (table 5). The
underlying concept of the CPIA approach is that fragility is characterised by weak state policies and institutions, which undermine the capacity of countries
to deliver services to their citizen, control corruption,
and provide sufficient accountability as well as of
a high risk of violent conflict (Stewart and Brown,
2009). The CPIA rates countries against a set of 16
institutional and policy criteria grouped into four
clusters: (a) economic management (three indicators);
(b) structural policies (three indicators); (c) policies
for social inclusion and equity (five indicators); and
(d) public sector management and institutions (five
indicators). In these lists, each indicator receives a
subjective score of one to six from the World Bank
staff members; the meaning of some of these indicators is clearly debatable (Arndt and Omar, 2006, or
Alonso and Garcimartín, 2013). The overall CPIA is
generated by taking the un-weighted average of the
four components, which, in turn, are averages of the
subcomponents. Countries that score less than 3.2
21
on the averaged indicator are defined by the World
Bank as fragile states.
One of the main motivations of the fragile states category has been that these countries, as a group, need
special and differential attention, particularly since
they lag behind in achieving the MDGs. For example, the recent 2011 World Development on Conflict,
Security, and Development (World Bank, 2011) as
well as the Global Monitoring Report (World Bank
2010) clearly state that fragile states lag behind other
countries in progress towards the MDGs compared
to non-fragile developing countries.
Such statements about lower overall progress towards
the MDGs have prompted some donors to use fragility measures to allocate aid. For example, the World
Bank’s CPIA definition of fragile states (see below)
is also used by the EU Commission to benchmark
EU aid.
But these statements have to be treated with considerable caution. In particular, as shown in Harttgen
and Klasen (2012), it not the case that fragile states
lag in MDG progress on average. Only if fragility is
defined very narrowly and focuses on (relatively few)
countries with multiple problems related to fragility, can one see somewhat slower progress.16 Also,
they show that the heterogeneity in performance on
MDG progress among fragile states is so large that it
does not make a lot of sense to treat them as a group.
This is, of course, related to the great heterogeneity of the conditions and factors that contributed
to countries being included in the label ‘fragile’. In
particular, some end up in the category due past or
present conflicts. But in some, where the conflict is
largely over (such as in Cambodia), this is no longer
such a handicap in terms of preventing MDG progress, while in others (such as D.R. Congo) conflict
remains a serious problem and prevents progress on
many fronts. Similarly, some countries have institutional weaknesses that are serious barriers to MDG
16
At the same time, it is true that fragile countries, regardless
of the definition, perform worse in terms of levels of MDG
achievement. So they are further away from the goals, but
their rate of progress has not been slower.
C D P BAC KGR O U N D PA PER N O. 21
22
Table 5
Lists of fragile states using different fragility definitions
CPIA 2008
Afghanistan
Angola
Burundi
CAR
Chad
Congo, Rep.
Congo, D. Rep.
Comoros
Djibouti
Côte d'Ivoire
Eritrea
Guinea
Guinea Bissau
Haiti
Kiribati
Sao Tome & P.
Sierra Leone
OECD
Afghanistan
Angola
Burundi
Cambodia
Cameroon
CAR
Chad
Comoros
Congo, Dem. Rep.
Congo, Rep.
Djibouti
Equatorial Guinea
Eritrea
Gambia, The
Guinea
Guinea Bissau
Haiti
Sudan
Iraq
Solomon Island Kenya
Kiribati
Timor Leste
Korea, Dem. Rep.
Togo
Lao PDR
Zimbabwe
Liberia
Mauritania
Myanmar
Nepal
Niger
Nigeria
Pakistan
Papua New Guinea
Rwanda
DFID
Afghanistan
Angola
Azerbaijan
Burundi
Cambodia
Cameroon
CAR
Chad
Comoros
Congo, Rep.
Congo, D. Rep.
Cote d'Ivoire
Djibouti
Dominica
Eritrea
Ethiopia
Gambia, The
Somalia
Sudan, The
Tajikistan
Togo
Tonga
Georgia
Guinea
Guyana
Haiti
Indonesia
Kenya
Kiribati
Lao PDR
Liberia
Mali
Nepal
Niger
Nigeria
Papua New
Guinea
Sao Tome & P.
Sierra Leone
Solomon
Islands
Somalia
Sudan, The
Tajikistan
Timor Leste
Tonga
Uzbekistan
Uzbekistan
Yemen, Rep.
Vanuatu
Zimbabwe
Yemen, Rep.
Sao Tome & P.
Sierra Leone
Solomon Islands
Stewart and
CIFP
Brown (failure)
Afghanistan
Afghanistan
Angola
Algeria
Bangladesh
Angola
Burkina Faso
Azerbaijan
Burundi
Bahrain
Cameroon
Belarus
CAR
Bhutan
Chad
Burkina Faso
Congo, D. Rep. Burundi
Congo, Rep.
Cameroon
Eritrea
CAR
Ethiopia
Chad
Georgia
China
Guinea
Congo, D. Rep.
Haiti
Congo, Rep.
Iraq
Cuba
Kenya
Eritrea
Lao PDR
Liberia
Madagascar
Malawi
Mali
Mauritania
Mozambique
Myanmar
Nepal
Niger
Nigeria
Pakistan
Rwanda
Sierra Leone
Ethiopia
Gambia, The
Guinea
India
Iraq
Israel
Kenya
Korea, Rep.
Lao PDR
Liberia
Libya
Mali
Nepal
Niger
Somalia
Sudan, The
Tanzania
Nigeria
Oman
Philippines
Togo
Uganda
Yemen, Rep.
Zimbabwe
Qatar
Sierra Leone
Somalia
Sudan, The
Swaziland
Turkmenistan
Uganda
Uzbekistan
Vietnam
Zimbabwe
Zimbabwe
Note: Countries in bold appear on all lists included in this table.
Stewart and
Brown (at risk)
Benin
Cambodia
Cameroon
Colombia
Congo, Rep.
Djibouti
Gabon
Gambia, The
Guinea
Indonesia
Kyrgyz Republic
Madagascar
Malawi
Mauritania
Mozambique
Pakistan
Papua New
Guinea
Senegal
Singapore
Solomon Islands
Sri Lanka
Sudan, The
Tajikistan
Tanzania
Thailand
Togo
Tunisia
Uganda
Zambia
Conflict-affected between
2003 and 2007
Afghanistan
Algeria
Angola
Burundi
CAR
Chad
Colombia
Congo, D. Rep.
Congo, Rep.
Eritrea
Ethiopia
Georgia
Haiti
India
Iraq
Israel
Liberia
Mali
Myanmar
Nepal
Niger
Nigeria
Pakistan
Peru
Philippines
Rwanda
Senegal
Somalia
Sri Lanka
Sudan, The
Thailand
Uganda
Uzbekistan
Yemen, Rep.
Fragile in all
definitions
listed here
Afghanistan
Angola
Burundi
CAR
Chad
Congo, D. Rep.
Congo, Rep.
Eritrea
Guinea
Nigeria
Sierra Leone
Sudan
Zimbabwe
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progress while others suffer institutional problems
that are less constraining.
In short, it is unclear whether a category ‘fragile
states’ is useful for classifying countries. The conditions under which these countries operate are so
diverse that tailor-made approaches and solutions are
required.
4.5. UNDP’s Human Development
classification
The UNDP’s classification is based on the Human
Development Index (HDI), defined by the institution in the Human Development Report in 1990.
The HDI is part of the effort that the UNDP, led by
ul Haq and with the support of Amartya Sen and
a group of others well-known development thinkers, undertook for promoting a shift in the focus of
development from the limited economic realm to a
more “people-centred” approach. Human development underlines that the purpose of development is
to enlarge people´s capabilities and choices, which
are typically not fully reflected in income levels. As
Sen wrote, human development is concerned with
“advancing in the richness of human life, rather than
the richness of the economy in which human beings
live, which is only a part of it” (Sen 1999).
In spite of the difficulty to capture the full complexity of human capabilities in a single figure, the
UNDP defined a composite indicator as empirical
approach of countries´ level of human development
and as a way to shift the attention of policy makers
from economic-based objectives to more ample human well-being purposes. Therefore, three aspects –
income, health and education – were identified as the
most important dimensions for approaching human
capabilities, being combined in a synthetic measure.
Originally, these three dimensions were measured
through the following indicators: GDP per capita
in PPP (income); life expectancy (health); and adult
literacy rate and the combined primary, secondary
and tertiary gross enrolment rate (education).
Although the HDI was quite well received, it has
also been subject of some criticism. Firstly, because it
23
adopted a partial approach to human choices, leaving
out of its consideration crucial aspects such as those
related to environmental sustainability and other
immaterial components of human well-being (human rights, personal and political freedom, cultural
roots, etc.) (McGillivray and White, 2006). Secondly, because it used diverse empirical procedures (such
as the selection of the indicators, the way to combine
the three dimensions, the processes of updating data
and the thresholds among groups), the indicator was
also subject to criticism; due to measurement error in
health, education and income data, between 10 and
33 per cent of countries could be misclassified (Wolf,
Chong and Auffhammer, 2011).
In part as a consequence of this criticism, the index has been refined over the years, including the
introduction of changes to the indicators chosen to
reflect the different development dimensions and to
the procedures to calculate the aggregated index. In
2010, the UNDP embarked on the latest overhaul
of the index. The revised composition of the HDI
is now as follows: income is measured through GNI
per capita with local currency estimates converted into US dollars using PPP; health is measured
through life expectancy at birth; and education is
measured through a combined measure of actual
and expected years of schooling. Each component
is transformed into a standardised scale so that the
values of the sub-indices are bounded between zero
and one. Finally, the aggregate index (the HDI) is a
geometric average of the three components.
In the first Human Development Report in 1990, the
UNDP classified the reported countries into three
categories: low, medium and high human development, according to the country’s HDI value. After
2009, the UNDP’s classification added a new category, classifying countries in four groups: very high,
high, medium and low human development. The
UNDP did not explain the rationale of this classification, nor the thresholds that defined the different
categories.
In the 2010 Human Development Report, absolute
thresholds were dropped in favour of relative ones.
C D P BAC KGR O U N D PA PER N O. 21
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The distribution of countries’ HDI is now divided
into four quartiles: developed countries are in the
top quartile; the group of developing countries form
the other three quartiles (low, medium and high human development) (table 6).
4.6. Highly Indebted Poor Countries (HIPCs)
To receive debt relief under the HIPC, a country
must first meet certain requirements that define
the “decision point”. The main criterion was that
the country’s debt remains at unsustainable levels despite full application of traditional, bilateral
debt relief. Additionally, the country must be poor
enough to qualify for loans from the World Bank’s
International Development Association or the IMF’s
Poverty Reduction and Growth Facility (PRGF).
Finally, the country must establish a track record of
reforms to help prevent future debt crises and must
define a Poverty Reduction Strategy Paper (PRSP)
through a broad participatory process. Once a country has made sufficient progress in meeting these criteria, the Executive Boards of IMF and World Bank
formally decide on its eligibility for debt relief.
The HIPC Initiative was initiated by the International Monetary Fund and the World Bank in 1996,
with the aim of offering highly indebted low-income
countries special measures of debt relief and low
interest loans to cancel or reduce external debt repayment obligations (largely to official multilateral
and bilateral donors) to sustainable levels. To be
considered for the initiative, countries must face an
unsustainable debt burden that cannot be managed
through traditional debt relief mechanisms (such
as those implemented by Paris Club). Assistance is
conditional on the national governments of these
countries meeting a range of economic management
and performance targets.
After criticism, a comprehensive review of the HIPC
Initiative was agreed in 1999 in order to provide
faster and broader debt relief. The review affected,
firstly, the thresholds to define debt sustainability.
Debt was deemed unsustainable when the ratio of
debt-to-exports exceeded 150 per cent (previously
was defined to 200-250 per cent) or when the ratio
of debt-to-government revenues exceeded 250 per
cent (previously 280 per cent) and had an exportsto-GDP ratio of no more than 30 per cent (from
previous 40 per cent) and a ratio of fiscal revenues
to GDP no higher than 15 per cent (from previous
20 per cent).
The new classification system allows the thresholds
to keep pace with the aggregate global level of human development. Therefore, this classification
does not have the problem of the downward trend
that characterises those classifications that rest on
absolute thresholds. On the other hand, it makes is
harder for countries to ‘progress’ from one category
to the next. As a result, UNDP is currently revisiting
this issue.
Table 6
UNDP´s human development classification
Number of countries
Population (in %)
GDP PPP (in %)
1988
2000
2007
2012
1988
2000
2007
2012
1988*
2000
2007
2012
Low Human
Development
44
36
24
45
31.0
39.5
5.8
18.2
2.8
10.7
0.5
2.8
Middle Human
Development
40
84
75
47
40.0
44.1
65.6
49.9
8.5
34.2
25.9
26.2
High Human
Development
46
53
45
47
28.9
14.5
13.8
14.7
88.8
55.0
17.4
17.0
Very High Human
Development
Total
-
-
38
47
-
-
14.8
16.1
-
-
56.1
54.0
130
173
182
186
100
100
100
100
100
100
100
100
Source: UNDP
* In US $ (at exchange rates)
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In addition to the modified threshold requirements,
the 1999 revision introduced other changes. Firstly,
the six-year structure was abandoned and replaced
by a “floating completion point” that allows countries to progress towards completion in less than six
years. Secondly, the revised HIPC allows for interim
debt relief so that countries begin to see partial relief before reaching the completion point. Thirdly,
the PRGF heavily modified the previously existing
Enhanced Structural Adjustment Facility (ESAF)
by reducing the number and the complexity of IMF
conditions and by encouraging greater input from
the local community into the programme’s design.
Finally, under the new practice of “topping up,”
countries that unexpectedly suffer economic setbacks
due to external factors after the decision point, such
as rising interest rates or falling commodity prices,
are eligible for increased debt forgiveness above the
decision-point level.
In order to receive full reduction in debt, a country
must establish a further track record of good performance in programs supported by the IMF and the
World Bank, implement satisfactory the key reforms
agreed at decision point and implement its PRSP.
Once a country has met these criteria, it can reach
its completion point, which allows it to receive the
full debt relief agreed at the decision point.
In 2005, the HIPC Initiative was supplemented by
the Multilateral Debt Relief Initiative (MDRI), supporting debt relief to African countries. The MDRI
allows for 100 per cent relief on eligible debts by the
IMF, the World Bank and the African Development
Bank for countries completing the HIPC Initiative
process. In 2007, the Inter-American Development
Bank (IDB) also decided to provide additional debt
relief to the five HIPC in the Latin American and
the Caribbean region.
There are now 39 countries classified as HIPC: 35
countries are at completion point and are receiving
full debt relief; one country (Chad) has reached its
decision point and has benefited from interim debt
relief; and three countries are potentially eligible for
HIPC Initiative but have not yet reached the decision point (table 7).
Table 7
Heavily Indebted Poor Countries (2013)
Completion
point
Between
decision point
and completion
point
Pre-decision
point
(35 countries)
(1 countries)
(3 countries)
Afghanistan
Chad
Eritrea
Benin
Somalia
Plurinational
State of Bolivia
Sudan
Burkina Faso
Burundi
Cameroon
Central African
Republic
Comoros
Côte d’Ivoire
Republic of
Congo
Democratic
Republic of
Congo
Ethiopia
The Gambia
Ghana
Guinea
Guinea-Bissau
Guyana
Haiti
Honduras
Liberia
Madagascar
Malawi
Mali
Mauritania
Mozambique
Nicaragua
Níger
Rwanda
São Tomé
Príncipe
Senegal
Sierra Leone
Tanzania
Togo
Uganda
Zambia
Source: World Bank.
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26
In general terms, the HIPC initiative has proved
reasonably effective in handling the severe indebtedness of poor countries. It has focused international
attention on unsustainable debt, has mobilised resources for heavily indebted countries and defined
mechanisms of dialogue and agreements between
borrowers and lenders.
in each category also belong to other categories. This
situation does not contribute to coherence in international development policy. Furthermore, in addition to a lack of coherence, country classifications
could cause other problems when they are used as
criteria for countries’ eligibility and graduation for
international aid.
It is also a positive example of a grouping of countries that is based on a particular issue with direct
(and substantial) measures of support attached to it,
rather than an all-purpose categorization to group
developing countries. As the debt issue has receded
for most HIPCs, the category is also fading away
which seems to be a good approach for an issue-based
grouping of countries.
In general terms, we could group the classification
systems mentioned in the previous sections into two
different types.
a. The first type refers to those systems that classify countries according to wide development
criteria: in these cases, a variable (or a set of
variables) is sought to characterize the country’s
level of development. These classifications aim
to be comprehensive and to classify all countries
participating in the world economy. We could
call these comprehensive or “country-based”
classifications. Examples include the World Bank
income classification system and the UNDP’s
human development index classification.
5 Problems with comprehensive
classifications
The proliferation of systems for classifying countries is not coherent and represents a problem for
international coordination and governance of the
development cooperation system. Instead of creating
predictability, order, rationality and transparency in
terms of rules, principles and approaches, this multiple classification results in the uneven treatment of
individual countries.
b. The second type relates those systems based on
defining a relevant development challenge and
identifying countries that suffer from it. This is
a selective, rather than comprehensive, classification of the international system; and it tends
to be based on particular issues identified rather
than on a country’s general features. We could
call these selective or “issue-based” classifications. HIPCs, SIDS, LLDCs and Fragile States
With so little coherence between categories, developing countries have been placed in several and often
overlapping groups. Table 8 illustrates the extent of
this overlap, indicating how many of the countries
Table 8
Overlapping categories
LDCs
SIDS
LLCs
LICs
LHDCs
FS
IDA
HIPCs
LDCs
48
SIDSa
8
52
a SIDS by UN-DESA, ORHLLS and UNCTAD.
b FS by OECD
LLDCs
17
29
LICs
30
3
15
36
LHDCs
37
6
15
30
45
FSb
24
5
8
26
33
43
IDA
44
12
18
32
42
25
62
HIPC
29
5
11
26
33
23
37
39
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are examples of this type. But as argued above,
only the HIPC category has largely stuck to its
direct issue-based mission.
The LDCs classification is somewhere between these
two systems. On the one hand, it can be understood
as a classification based on identifying a specific
type of problem (extreme structural impediments
to growth), and grouping together those countries
suffering from that challenge. However, on the other hand, the problems identified are so general and
comprehensive that the system could be understood
as a generic distribution system of countries’ developmental levels17.
As we highlighted at the start, some country classification systems are designed for purely analytical
reasons, aiming to bring together countries that are
relatively homogenous. Other classifications, however, are associated with defining criteria for countries’
eligibility for certain international support measures.
Frequently, though, even those classification systems
that were not conceived to assign aid have ended up
being used by some donors as part of their general
processes of selecting which countries have access to
international aid.
That is, particularly, the case of the World Bank´s
income classification. There are hardly any bilateral
donors that rely solely in the World Bank´s thresholds for country eligibility or aid allocation, as long
as they usually employ, in a discretionary and flexible way, additional criteria for that, including those
related to donor´s interest and strategic purposes.
But most of donors take into consideration, and
assign great importance to those income thresholds
in their allocative decisions. In fact, there are many
donors that have decided to graduate countries from
their support system when these countries cross the
somewhat arbitrary threshold from low- to middle-income countries. Based on that practice, in the
last decade, a significant group of donors proceeded
17
In fact, the creation of the LDCs category seems to be
linked to a desire by the international community to pay
special attention “to the less developed among them [the
developing countries]”.
27
to close their development cooperation offices in
middle-income countries.
The process of aid allocation is subject to more explicit rules in the case of the international financial
institutions and global funds, mainly because they
have to answer to different interests of their plural
membership. In the case of the World Bank and other Regional Development Banks, GNI per capita is
used as a central factor in establishing eligibility to
and graduation from concessional windows (table 9).
More precisely, IDA defines for eligibility a maximum level of GNI per capita ($1195) that is close
to the threshold that the World Bank uses for defining LICs. The same threshold is employed by the
International Fund for Agricultural Development
(IFAD), the African Development Fund, the Asian
Development Fund and the IMF´s Poverty Reduction and Growth Trust. In accordance with the
level of development of the region in which operates
(mainly composed by MICs), the Inter American
Fund for Special Operation set the threshold in a
higher level of GDP per capita ($2587). Among the
global funds, GAVI Alliance, the Global Fund and
the Global Agriculture and Food Security Program
(GASFSP) also use GNI per capita (and a similar
threshold too the World Bank threshold) as criterion
for countries’ eligibility.
Although not being an exhaustive list, the cases
mentioned are enough for confirming that the
World Bank´s classification is used by an ample
group of bilateral and multilateral donors as criterion for support allocation. It is, therefore, worth
considering that associate international aid with a
comprehensive classification, such as this one, can
create severe problems in at least three areas: those
related to equity, incentives and the necessary international coordination.
Problems of equity stem from the fact that the criteria for assessing eligibility and graduation of countries link a reality that is continuous and progressive
- the developmental level of these various countries
- to a discrete outcome: either a country is eligible
or not (in or out). That can lead to situations where
C D P BAC KGR O U N D PA PER N O. 21
28
Table 9
SIDS by UN-DESA, OHRLLS and UNCTAD
Institution
Eligibility
Allocation
Graduation
IDA
GNI per capita ($1195)
Lack of credit worthiness
GNI per capita
Population
CPIA
GNI per capita
Creditworthiness
IFAD (highly concessional)
GNI per capita ($1195)
Lack of credit worthiness
GNI per capita
Rural population
CPIA
Portfolio performance
Institutional and policy
framework for sustainable
rural development
GNI per capita
African Development Fund
GNI per capita ($1195)
Lack of credit worthiness
GNI per capita
Population
CPIA
GNI per capita
Creditworthiness
Asian Development Fund
GNI per capita ($1195)
Lack of credit worthiness
GNI per capita
Population
CPIA
GNI per capita
Creditworthiness
Inter American Fund for
Special Operations
GDP per capita ($2587)
GNI per capita
Population
CPIA
GNI per capita
IMF Poverty Reduction and
Growth Trust
GNI per capita ($1195)
Lack of credit worthiness
GNI per capita
Program-based
conditionality
GNI per capita
Creditworthiness
GAVI Alliance
GNI per capita ($1195)
DTP3 Coverage
GNI per capita
GNI per capita
Global Fund
World Bank Income
Categories
Disease burden
Non G20
Eligibility for ODA
Population
Disease burden
Indicative funding
Performance
Transition to UMIC
Member of the G20
European Commission
Income Categories
Country Size
Income per capita
(LICs and LDCs)
Fragile States
Other criteria
Member of the G20
Source: based on Salvado and Walz (2013).
countries with very similar conditions (and scores
of classifying indicators) receive notably different
treatment because they are on either side of a threshold that, in many cases, is arbitrary. That can cause
comparative grievances that are difficult to justify.
Secondly, there are problems of incentives that come
from the way the criteria of graduation are defined.
These problems have to do with general synthetic
variables (per capita income level or human development level) that underline the assessment of the
need of support. Thus, the removal of international
support seems to be associated with development
achievements, and this is not the most ideal way
to properly align the incentives of the international system. In some way, what the system is doing is
penalising success (and rewarding failure) by tying
achievements to the removal of international aid.
That can also lead to incentives to distort statistics.
When Ghana recently modernized its national accounts, it found itself 60 per cent richer, moving to
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the lower middle-income category and now no longer
eligible for some types of international support (see
Jerven, 2013; Devarajan, 2013).
Lastly, given the generic character of the classification criteria, there are many donors that share the
same threshold for countries´ graduation for aid,
which could lead to resources being simultaneously
withdrawn, without proper coordination, affecting
the stability and progress of a country. In fact, there
is strong inter-dependence of donor giving (Davis
and Klasen, 2012). Moreover, there are many donors (particularly multilateral ones) who base their
graduation criteria on the per capita income of the
recipient country, often defining the threshold for
ending support eligibility close to that which defines
middle-income countries. As a result, 41 countries
will graduate from the IDA, 15 from the African
Development Fund, 15 from the Asian Development
Fund and about 38 from the GAVI Alliance between 2013 and 2030 (Salvado and Lah (2013)). The
simultaneous graduation from various organisations
suggests that some middle-income countries may
lose between 25 and 40 per cent of the international
aid funds they receive. Such an abrupt withdrawal
of funds beyond severely limiting the total volume
of resources available for the country, could affect
the composition of spending since it will principally impact on those sectors - such as education and
health - where aid financing is crucial (Salvado and
Waltz, 2013).
In fact, where comprehensive classification systems
are used, the graduation processes seem to be particularly inadequate. Nothing fundamentally has
changed when a country surpasses an income (or
HDI) threshold that is somewhat arbitrary, such as
those that define income (or human development)
categories (Alonso et al., 2014). In these cases, it
would be better to substitute the current graduation
procedure by a process of “gradualness”; in other
words, it would be better to support national efforts,
modulating aid intensity (and its content) to the
abilities and needs of the recipient. Furthermore,
support should be maintained until the risk of a
country slipping backwards in terms of development
29
are small, something that is impossible to ascertain
by a simple variable such as GDP per capita or the
HDI. Additionally, a well-designed transition period
should be defined, to allow for a gradual (rather than
abrupt) withdrawal of international aid, offering the
country clear alternative cooperation mechanisms
and supervision of its evolution, in order to ensure
that withdrawing aid does not have serious costs
to the processes of development. In the case of the
LDCs, General Assembly resolutions 59/209 and
67/221 are positive steps in this direction.
a. The case of LDCs
The LDC category is a particular case among existing country groupings. It is sanctioned by the UN
General Assembly which takes decisions on inclusion and graduation. It has a long history and a clear
set of criteria, grounded on sound analytical foundations and the CDP (an independent body of experts)
plays a substantial role in monitoring the process of
countries´ inclusion and graduation.
In contrast, most of the other groupings are either
generated by a particular institution that is pushing
a certain agenda with these categories, or by countries lobbying for a category. None of these categories have been officially approved by any global body,
in most cases not even by the governing bodies of the
institutions that promoted them.
The CDP category also relies on a set of approved
procedures for phasing out LDC-specific support.
Yet, development and trading partners’ compliance
with these provisions has been uneven. In general,
ODA flows have been maintained to LDCs that
have graduated. This seems to be a logical outcome
since, as seen above, donors do not necessarily allocate ODA according to LDC status. Yet, other types
of support --of which the most relevant is arguably
preferential market access—have been discontinued,
sometimes abruptly by some partners. It is worth
noting, however, that several LDCs participate in
regional free trade agreements, in which change of
LDC status has no implications for market access. In
any case, the potential loss of benefits creates a great
deal of concern in graduating countries
C D P BAC KGR O U N D PA PER N O. 21
30
6 Alternative classification by issues
The problems that affect “country-based” classification systems do not affect “issue-based” classifications in the same way, particularly when support
measures are specifically designed to tackle the problems that define the category. Equity does not seem
to be a concern if aid measures designed to tackle
a particularly problem are not applied to a country
that does not suffer from that problem (or one which
no longer has the problem). For example, there
does not seem to be any discrimination problem if
measures designed to compensate the costs resulting
from remoteness are not applied to a country that
is close to a large international market; nor is there
a problem if support measures for HIPCs, are not
applied to countries that are not highly indebted. It
is nevertheless important to ensure that the problems
identified are considered as shortcomings deserving
international support for the problem of equity not
to arise. And support should focus on the particular issue and not become generalized. Issue-based
systems do not seem to suffer from the problem of
simultaneous withdrawal of international support,
which appears in the graduation processes associated
with the “country-based” system types (particularly
in the income defined systems). Given that support
is associated with specific problems, the fact that a
country overcomes one of the problems addressed
will not mean that it ceases to receive aid for the
remaining challenges it confronts. Lastly, if issues
and their respective measures of support are properly defined, the problems of poor incentives could
also be avoided. For that, it is needed to target aid
to countries where a particular issue exists and focus
it on activities addressing the particular challenges
associated with that particular issue.
Notwithstanding the above, “issue-based” systems
have two disadvantages worth considering. One
refers to the possible fragmentation of the international system, as long as there are numerous development issues deserving of preferential treatment by
the international community. The other relates to
the loss of a comprehensive approach to issues that
are tightly interconnected
In order to avoid the risk of a disorderly proliferation of categories and aid measures four basic criteria
should be followed:
„„ First, given the proliferation of country classifica-
tions, the creation of new categories should be
subject to careful study. Some issues could give
rise to support measures without necessarily defining a new group of countries subject to this
treatment. For example, aid could be allocated
in relation to the LDC Economic Vulnerability
Index, without creating any category for that.
This approach has already been acknowledged by
the General Assembly, resolution 67/221, paragraph 23, which invites “development partners
to consider least developed country indicators,
gross national income per capita, the human assets index and the economic vulnerability index
as part of their criteria for allocating official development assistance”.
„„ Second,
a category should be defined when the
issue is important, deserves a specific set of support measures that is distinct from any other sets
of measures applied to developing countries and
requires certain international coordination (because implies a problem of collective action). It
is important that the chosen issues do not raise
problems of moral hazard (generating perverse
incentives) nor link international support with
policy options that should be freely decided by
affected countries. For example, environmental
vulnerability could be an acceptable issue, as long
as it points to an important structural development obstacle that deserves international support
and is, to some extent, out of government control. Meanwhile, a low tax effort should not be a
criterion to allocate aid, as long as international
support in these cases could reward government´s
attempt to avoid the political cost of taxing the
richest groups.
„„ Third,
in order to evade the proliferation of
groups, the issue-based classifications need to be
designed from a relatively comprehensive view,
with an aim at taking main crucial impediments
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to development into account. Overall, the issuebased classification systems appear to better address development issues pertinent to developing
countries, as long as issues are defined with objective criteria and monitored with sound data.
The system can avoid disorderly increases in the
number of categories as long as the issues at hand
are kept minimal.
On the other hand, in order to avoid a fragmented
treatment of the interlinked aspects of development,
it could be useful to maintain a comprehensive category for the process of aid allocation. In this case,
the LDCs category is the best option for preserving
the required comprehensive approach to basic development problems for the reasons mentioned above:
sound methodology includes a complex set of different development dimensions and applies to an ample
list of countries with severe handicaps to development. Therefore, donors should strengthen the role
of LDC category in their allocation of development
assistance, avoiding the creation of new or alternative comprehensive categories that could compete or
partly overlap with the LDCs category. This recommendation is compatible with donors that adopt an
issue-based approach to identify sub-sets of countries
within the LDCs group or in the developing world
that face similar challenges, and design a set of specific support measures to each sub-set of countries,
complementary to those that are associated to the
LDCs group or the developing world.
A last point to consider is the legitimacy of particular categorizations. There is a strong case to be made
that country groupings -- particularly those that are
linked with countries eligibility for measures of international support -- ought to be transparent and
carry legitimacy of the institutions that decide the
eligibility for inclusion and exclusion. Here the LDC
category has substantial advantages, too.
7 Concluding remarks
We have considered various ways to group developing countries and assessed the merits and problems
of each of these systems of classification. Clearly, the
31
recent proliferation of categories has created a lot of
confusion and fragmentation, and many categories
generate substantial problems. We have argued that
many of the country-based groupings and some of
the uses of issue-based groupings are deeply problematic (e.g., the FS grouping), create perverse incentives, and lead to problems of inequality in treatment. Additionally, these groupings do not often
reflect homogeneity in the countries concerned and
thus these groupings are simply not a valid way to
sort countries. We would suggest two ways forward.
Firstly, the creation of new comprehensive, country-based classifications should be avoided. Donors
can identify development issues that deserve international support, without defining any new category.
In most of cases, international donors could allocate
aid and other measures of support, based on sound
and objective criteria linked to these identified issues. If new categories are needed at all, issue-based
classifications are more useful and special support
should be targeted to that issue. The HIPC category
is a good example for such a grouping. Similarly, one
could imagine that, instead of generating an ‘all-purpose’ SIDS category, it would be better to turn this
proposal into a real issue-based categorization. For
example, one could group countries that are severely
threatened by rising sea levels, including not only
pertinent small island states but also continental
countries with a large land mass of low-lying areas.
Such a category should then receive special support in
particular programs of adaptation to climate change.
Similarly, another group of small island states (and
some other remote countries) which are particularly
remote from large international markets and trade
routes could receive special support in ‘aid-for-trade’
programs. Such issue-based groupings would be
much easier to generate and maintain and would be
more defensible for targeted support measures.
Secondly, for country-based systems, the LDC category has a range of advantages over other country-based groupings. They include a clear and transparent process and indicators, a track record and high
legitimacy, and an independent body to monitor its
implementation. In this regard, difficulties linked
32
to graduation decisions in the intergovernmental
process need to be addressed not to undermine the
legitimacy of the category. At the same time, in view
of the continuous or gradient nature of most development challenges, we also suggest that there should
C D P BAC KGR O U N D PA PER N O. 21
be no sharp distinctions between those on the list,
and those that are slightly better off or have recently graduated. Instead, a more gradual approach to
support measures is required to address some of the
equity and incentive problems discussed above.
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